(RTTNews) - Wednesday, a report from Westpac Bank and Melbourne Institute said that the annualized leading index for Australian economic activity showed positive growth in August, signaling a further improvement in economic conditions in the coming months.

In August, the Westpac-Melbourne Institute Leading Index rose 1.7% on an annualized basis, marking the first time since September 2008 that the annualized leading index has recorded positive growth. However, the annualized growth rate remained below its long term trend of 2.8%.

The leading index gives an indication of how the economy will perform in the next three to nine months. The index had reached its low point with a 6.9% annualized decline in May.

“The pace of recovery in the growth rate of the Leading Index has been remarkable,” Westpac Chief Economist Bill Evans said. “Following the two recessions Australia experienced in the early 1980’s and 1990’s, the rate of recovery in the Index was not as steep.”

The improvement of the annualized leading index from May to August was attributed to increases in domestic labor market conditions, U.S. industrial production, share prices, corporate profits, dwelling approvals, manufactuing prices and productivity.

On a monthly basis, the Leading Index rose 2.8 points or 1.1% from the previous month to 252.4, slower than the 1.4% rise in July. Three of the four components that make up the leading index were higher in August. Share prices recorded the most significant rise, up 5.5%, followed by U.S. industrial production, which rose 0.8%. Real money supply climbed 0.1%, while dwelling approvals fell 0.1%.

The Coincident Index - which serves as an indicator for current economic conditions - rose 0.1 points from the previous month to 238.7 in August. In terms of its components, real retail trade rose 0.6%, while employment fell 0.2%.

Evans said that August’s leading index data points to significantly improving growth prospects in 2010 and expects the Reserve Bank of Australia to further hike interest rates in the next monetary policy meeting. Governor Glenn Stevens and company had unexpectedly raised the benchmark interest rate by 25 basis points to 3.25% on October 6.

“The current sharp improvement in the growth rate of the Leading Index strongly supports the view that the Australian economy is moving onto a much stronger growth trajectory in 2010,” Evans said.
“A decision to raise rates by 50 basis points in November would not surprise.”

Evans added that the latest leading index reading was consistent with Westpac estimates for GDP growth in Australia to rise to 4% in 2010 from 1.5% in 2009.

Meanwhile, the Australian Bureau of Statistics announced earlier in the day that new motor vehicle sales in Australia decreased in September by a seasonally adjusted 2% over the year ago period. A total of 77,744 vehicle sales were registered in September.

Sports utility vehicle sales increased 2.8% year-on-year in September, while passenger vehicle sales dropped 1.6% and other vehicle sales dipped 7.4%.

On a monthly basis, vehicle sales were up a seasonally adjusted 2.9%. Increased sales were seen in all vehicle types compared to August.

The Australian dollar that traded higher against its major counterparts on early Wednesday, reversed direction following the release of the leading and coincident indices report.

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Posted in Categories: Australia, Economy, Forex, Releases, USA.

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